What is ‘Certain And Continuous’
Certain and continuous is a type of annuity that guarantees a number of payments, even if the annuitant dies. If the annuitant passes away during the guaranteed period, a specified beneficiary will receive the rest of the payments. Alternatively, if the annuitant outlives the specified number of guaranteed payments, he or she would continue to receive income payments for life; however, no payments would be available to the beneficiary.
BREAKING DOWN ‘Certain And Continuous’
Also called C&C annuity, certain and continuous annuities are a type of guaranteed annuity where the annuity issuer is required to make payments for at least a specified number of year. A common example is a 10-year certain and continuous annuity. In such a situation, monthly payments are paid to the annuitant for life. If the annuitant dies, the designated beneficiary would receive any monthly payments for the remainder of the certain period – in this case, 10 years. Otherwise, if the annuitant lives beyond the 10-year period, he or she will continue to receive monthly payments for life; however, after the 10-year period, the beneficiary would no longer be eligible for monthly payments.
When you annuitize to create payments, the income stream is a combination of return of principal and interest. With lifetime income annuitization, income is primarily determined by life expectancy at the time payment is received, in combination with current interest rates. In essence, annuitants place a bet with the annuity company that they will live longer than they project you to live, and if the annuitant does, the insurance company is on the hook to pay you. That’s called transferring risk, and it’s a unique benefit that only annuities can offer.
Two Types of Certain and Continuous Annuities
Certain and continuous only – An annuitant doesn’t have to attach a life contingency when they annuitize. Instead, they can choose a specific period of time for the payments to occur. For example, a 20-year certain and continuous annuity will pay for 20 years, then payments will stop. The shortest certain and continuous annuity is typically five years.
Life with certain and continuous – This type of annuity still provides a lifetime income stream, but the annuitant can choose the minimum amount of years that they or their beneficiaries will receive payments. For example, Life with 10-year certain and continuous means that you will be paid for as long as you live. However, if you died in year three, your beneficiaries will receive seven more years of payments. If you live past 10 years, then there will be nothing left for your beneficiaries when you die.